UNIT IV
Directors
Q1) Who is a director?
A1) A director is not a servant of any master, they are rather the officers of the company. A director is, in fact, a director or controller of a company and he manages all the affairs of the company. However, a director can work as an employee in a different capacity.
Directors are basically registered under the companies act and are duly appointed by the company to direct and manage the business of the company. They are sometimes described as agents, as trustees and sometimes as managing partners.
Q2) What are the provisions relating to appointment of directors?
A2) Provisions relating to appointment of directors:
1) Casual vacancies :
A casual vacancy occurs when the director’s office is vacated before the expiry of the term of the director. Such a vacancy can be filled by the procedure or the process prescribed by the articles. If any clause is absent in the articles then the power is given to the directors so that he can fill the vacancy at the board meeting. The person who has been appointed by this procedure, hold the office until the expiry of the period for which the outgoing director would have held the office.
2) Additional directors :
Considering the powers of the directors, additional directors can be appointed by the board. There can be an addition to directors but total members of the directors should not exceed the maximum limit as mentioned in the articles. If the strength of directors is below the minimum limit of the members then the addition of directors is valid.
However, the additional directors can hold the office only up to the date of the next meeting which is held annually. The additional director is exempted to fulfill the requirement of consent under Section 264.
3) Appointment by Central Government :
The central government has the power to appoint directors for the purpose to prevent mismanagement under Section 408. This power is applied when a petition has been filed to the National Company Law Tribunal to prevent mismanagement.
Q3) What are the provisions for serving notice for board meeting?
A3) Notice of every meeting of the Board of directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.
Every officer of the company whose duty it is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to one hundred rupees.
Q4) What is the quorum for Board Meetings?
A4) The quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher.
Provided that where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength, the number of the remaining directors, that is to say, the number of the directors who are not interested, present at the meeting being not less than 2 shall be the quorum during such time.
Interested director means any director whose presence cannot, by reason of his being interested in some manner in the subject matter of discussion be counted for the purpose of forming a quorum at a meeting of the Board, at the time of the discussion or vote on any matter.
Q5) What are the general powers of Board?
A5) General Powers of Board
Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do.
However, the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.
Q6) What are the powers of Board to be exercised in meetings?
A6) Certain powers to be exercised by Board only at meeting
The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-
Q7) What is oppression?
A7) Lord Cooper explained the meaning of oppression in the case Elder v. Watson Ltd[1], “Oppression is a misdemeanor committed by majority shareholders who under colour of their majority power, wrongfully inflict upon the minority shareholder or minority shareholders any harm of injury” was also cited with approval by WANCHOO J (afterwards CJ) of the Supreme Court of India in Shanti Prasad Jain V. Kalinga Tubes Ltd[2],
The grounds on which an application can be made under section 241 are : (a) that the affair of the company are being conducted in a manner which prejudicial or oppressive to a member or some members or in a manner which is prejudicial to the public interest or in a manner prejudicial to the interests of the company; (b) a material change has taken place in the management or control of the company, whether by an alteration in the Board of directors, or manager, or in the ownership of the company’s shares or its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members.
Q8) What is mismanagement?
A8) Mismanagement means the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. It is also said to mismanagement where a material change has taken place in the ownership of the company’s share or if it has no share capital in its membership or in any other manner whatsoever and that by reason of that change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. Palmer explains that a proper balance of majority and minority rights is necessary to run a smooth functioning of the company.
Q9) What are the provisions under Companies Act regarding remedies against oppression and mismanagement?
A9) PROVISIONS UNDER COMPANIES ACT, 2013
In providing the remedies to the minorities the tribunal plays an important role.
1) Section 241 – empowers the minority shareholders to file an application to the tribunal for relief in case of oppression etc.
2) Section 242 – narrates the powers about the tribunal
3) Section 243 – states about the consequences of termination of modification of certain agreements.
4) Section 244 – gives the right to apply under section 241.
5) Section 245 – states about the Class Action.
6) Section 246 -lays down the provisions of secty377- 341. Liability under 339 and 340 to extend to partners or directors in firms or companies. Shall apply Mutatis Mutandis in relation to an application made to the tribunal under section 241 or 245.
7) Section 337- Penalty for frauds by officer.
8) Section 338- Liability where proper accounts are not kept.
9) Section 339- Liability for fraudulent conduct of business.
10) Section 340- Power of tribunal to assess damages against delinquent directors etc.
11) Section 341- Liability under section 339 and 340 to end to partners or directors in firms or company.
Q10) Describe qualification of directors.
A10) Qualifications of directors
Share qualification
The articles of the company provide that every director should hold a certain number of shares. Such shares are known as qualification shares. A director must obtain the required number within two months of the appointment. If a director is not appointed as a director he cannot be compelled to obtain qualification shares. Also within a period shorter than two months of the appointment, he cannot be compelled to obtain the qualification of shares. The value of the qualification shares cannot be more than five thousand rupees except when the nominal value of the share is more than the amount of the share. A director can hold only shares and not share warrants. A director may suffer if he fails to obtain his qualification shares as advised. He can suffer in two ways:
1) His office can fall vacant.
2) He will be liable to pay a penalty if he continues to act as a director. The director is required to hold the shares in his own right.
